Minimum Wage and Small Business

By Janey Whitney

8/20/2020

The Socialist Party USA states, “[w]e call for a minimum wage of $15 per hour, indexed to the cost of living.”1 In theory, making more money initially sounds like a good thing, right? Not exactly. But let us unpack the implications of moving to a $15 minimum wage, specifically the implications on small businesses. A national minimum wage of $15 would ultimately be detrimental to everyone, but most importantly to small business owners. 


Starting a business is no easy task, so “even modest incremental labor costs can be a critical determinant of their Stage-1 survival.”1 Many small businesses hire entry-level employees at lower wages to help keep their costs down. This not only helps the small business run with low costs in their beginning years, but it also offers the opportunity for high school students, those with low education, and immigrants to have the opportunity to hold a job and build their experience. These opportunities will help lead them to better employment opportunities down the line. 


Imagine trying to start your own company in the United States, the country of endless opportunities, but you have to factor in paying each employee $15 per hour, along with paying for everything else that comes along with opening a small business. You’d most likely end up doing the work yourself because you couldn’t afford to pay for employees. “Minimum-wage legislation has played a significant role in the disemployment of those entry-level workers whom the small business is most likely to seek as employees.”2 This deprives those entry-level employees of skills and experience they will need to grow in the workforce. So what sounds better, the current minimum wage of $7.25 or taking a risk on having no salary at all? 3


Stating that people will lose jobs if the minimum wage is raised to $15 is not solely an opinion or an observation, the likelihood of this happening has been proven through research by the Congressional Budget Office. This is a nonpartisan analysis for the U.S. Congress which found that “1.3 million workers who would otherwise be employed would be jobless in an average week in 2025” if the minimum wage were increased to $15 by January 1, 2025, leaving a 0.8% reduction in employed workers in the United States.2 


Big corporations will not take a loss in profit to adjust to a new minimum wage, and family owned or privately owned businesses cannot afford to increase the salary of their workers without going under or charging their customers more. Some of the largest companies today started in a garage, such as Amazon and Apple. Even Kroger began when Barney Kroger took his $372 life savings (equal to $9,465 today), to open up a small store and the rest was history. 4 Small businesses are the backbone of this country, and mandating a $15 minimum wage would be detrimental to their creation. 


Who stands to benefit from a $15 minimum wage? It is not the low educated, or immigrants, or teenagers, and it is definitely not small businesses. Large corporations who can afford to and have already increased their employees hourly wages to a minimum of $15, such as Amazon, would greatly benefit from the lack of new small businesses.5 Instead of consumers going to new small businesses, they would continue to flock to large companies, eventually putting a near end to small mom-and-pop shops. “Standard competitive economic models predict that higher minimum wages result in less employment.”3 As The Notorious B.I.G. said, “Mo Money Mo Problems.” That’s exactly what small businesses, and entry-level employees will get with a $15 minimum wage.


Sources:

1. Moore, James S. “Increasing the Federal Minimum Wage: An Implications Side-Bar for ‘Mom and Pop’ Employers.” Journal of Collective Negotiations, vol. 32, no. 1, June 2008, pp. 24.

2. Lbd, pp. 29.

3. ORRENIUS, PIA M. “The Effect of Minimum Wages on Immigrants’ Employment and Earnings.” Industrial & Labor Relations Review, vol. 61, July 2008, p. 544. 


About Janey

Twitter: @JaneyLauren

Instagram: @Janey_1998

LinkedIn: Janey Whitney

Janey Whitney is a 2019 graduate of Samford University in Birmingham, Alabama where she obtained her Bachelor of Arts degree in Law, Politics and Society. Janey has volunteered, interned, and worked in several different political settings: including law firms, think tanks, and political campaigns. She hopes to run for office one day, in hopes to combat socialist ideals and to fight to keep America the same great country we all love.

#Socialism #America #Capitalism

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